Congress Considers Bill to Boost Retirement Savings

SECURE plan incentivizes employees to save for their golden years

The statistics surrounding workers contributing to their retirement nest eggs are shocking.

  • More than 1 in 5 working Americans are not saving for financial milestones, including retirement, according to a March 2019 Bankrate survey
  • In a second Bankrate survey, the greatest regret people surveyed had was not saving for retirement.
  • And the forecast isn’t getting better. A 2019 survey by the Federal Reserve found that 25% of nonretired adults have no savings or pension at all.

That’s why both chambers of Congress have introduced legislation providing more opportunities for workers to save money for retirement. The U.S. House recently approved the Setting Every Community Up for Retirement Enhancement, more commonly known as the SECURE Act. Similar bipartisan legislation in the U.S. Senate is making its way through the legislative process.

If enacted, the SECURE Act would be the most impactful legislative change to the retirement system since 2006, when the Pension Protection Act was signed into law.

One key reason for the changes is people are working beyond traditional retirement age and they are living longer than before, and therefore have to more closely manage the drawdown of their assets.

Here’s how the legislation intends to make retirement savings more accessible.

The bill makes it possible for part-time employees to participate in a company’s 401(k) plan, which is prohibited by current law. If the bill is enacted, employers must open the defined contribution plan to anyone who works 500 or more hours a year and has been working for that employer for at least three consecutive years.

The measure also changes the age when a person is legally required to start withdrawing funds from their retirement plan. Currently, anyone who is 70½ years old must pull funds from pension or retirement plans. Under the bill being considered, that age is pushed back to 72. The required minimum distribution law is in place to prompt retirees to spend their nest eggs during their lifetime.

Another provision of the legislation deals with how long an heir can hold onto a 401(k) plan, traditional IRA or Roth IRA inherited from someone who died. The bill requires balances to be withdrawn within 10 years of the inheritance. Currently, people can stretch the balance over their lifetime.

Annuities are another element of the SECURE Act. Most 401(k) plans do not offer the opportunity to purchase annuities, which involves an investment that provides regular disbursements throughout a period of time in exchange for a lump-sum payment at the start of the annuity distribution.

The legislation also opens the way for more small businesses to offer defined contribution plans. According to the House Ways and Means Committee, the bill expands the abilities of employers to offer multi-employer plans. It also offers a $500 tax credit to help pay for startup costs for retirement plans.

In addition, the bill could change the way people save by:

  • Expanding the uses for 529 higher education accounts by allowing the funds to be used for apprenticeships or to pay up to $10,000 on student loans if they qualify.
  • Allowing new parents – either through birth or adoption – to withdraw up to $5,000 of their retirement savings within the first years of the birth.

The House bill now goes to the Senate, which has its own version of the SECURE Act in the works.

 

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